Consumer Confidence Inches Higher; Home Price Declines Continue

MBA (7/30/2008 ) Velz, Orawin
The Conference Board's Consumer Confidence Index rose to 51.9 in July from June’s 51.0, which had been the lowest reading since February 1992. This was the first increase in seven months.
The expectations component led the increase, rising to 43.0 from a record low of 41.4 in June. The present conditions component edged down to 64.3 from 65.4.

Consumer assessment of current labor market conditions deteriorated further. The share of consumers finding jobs plentiful fell to 13.5 percent from 14.1 percent. The share finding jobs hard to get increased to 30.3 percent in July from 29.7 percent in June.

In a separate report, home prices continued to decline in May in selected major cities, according to the Standard and Poor's/Case-Shiller home price indices. While the year-over-year declines in the indices continued to set records, the report offered some good news in that the month-to-month declines in the indices continued to moderate over the last few months.

The 10-metropolitan area composite index was down 16.9 percent in May from a year ago—the largest year-over-year decline since the inception of the series in 1987. The broader 20-metropolitan area composite index showed a year-over-year drop of 15.8 percent, also the sharpest decline in the history of the broader index since its inception in 2000. These two indices are now down 19.8 percent and 18.4 percent, respectively, from their peak.

All 20 metropolitan areas reported year-over-year home price drops, led by 28 percent drops in Las Vegas and Miami. The 20 selected cities do not represent the overall picture of the nation’s housing market, however, with seven of the total coming from the four states experiencing the most significant home price drops in the nation: California, Florida, Michigan and Nevada. Prices in these seven cities have declined by at least 20 percent in May from May 2007.

A month-to-month comparison offered a better picture of home price trends. The 20-metropolitan area composite index dropped 0.9 percent in May from the prior month, with seven metropolitan areas posting increases in home prices for the month. The decline for the month of May slowed from month-to-month declines of 1.3 percent in April, 2.2 percent in March and 2.6 percent in February. However, since the data are not seasonally adjusted, some of the moderation in home price drops could be influenced by seasonal factors as home prices generally rise during the spring buying season.

The slower pace of house price declines in recent months supports the view that while home prices should continue to fall for some time, given the historically high months’ supply of homes, the largest drops in home prices may be behind us.